How U.S./China trade tensions can impact Canadian agriculture

Trade tensions between China and the United States have swiftly escalated this week. U.S. tariffs on steel and aluminium triggered Chinese retaliation, targeting, among others, U.S. exports of wine, fruit and pork. The U.S. published a second round of Chinese exports they’ll target with tariffs, to which China responded with further retaliatory taxes on U.S. products, including soybeans.

China’s proposed tariffs could impact Canadian agriculture in three ways:

  1. Canadian exporters could benefit from higher-priced U.S. products into China

    If buyers believe they can easily replace the U.S. product, Canada’s pork producers may see small growth in demand. However, U.S. pork exports amount to only 0.3% of Chinese pork consumption. The large price hike imposed by their proposed 25% tariff will hit those buyers seeking the lowest-cost suppliers. But it may not be enough to change the pattern or overall volume of Chinese imports from the U.S., especially given the inevitable costs importers face when switching suppliers. 

  2. Trade actions can lead to more volatile commodity prices

    China imports 88% of the soybeans it uses in a marketing year. Raising the price of soybeans of a large supplier like the U.S. should lower the overall Chinese demand for soybeans. That will lower the U.S. price, no matter where China ends up sourcing soybeans from.

  3. Disrupted bilateral trade flows could re-shape Canada’s domestic and global markets

    A tax on U.S. exports to China will not only alter the bilateral trade flows between the two countries. It will also cause other bilateral trade flows to deviate from the patterns observed in recent years.

    U.S. pork producers may have to find other markets in 2018, thereby displacing Canadian pork in global and/or domestic markets. U.S. fruit exporters could increase shipments to Canada as they face a dwindling market in China. Higher soybean prices for Chinese buyers can lead to higher demand for Canadian canola.

 

Current trade tensions between the two largest single-country economies will reverberate globally, and perhaps long-term. A robust marketing plan for 2018 will be critical to deal with the potential market turbulence ahead. 

J.P. Gervais
Vice-President and Chief Agricultural Economist

J.P. is the Vice-President and Chief Agricultural Economist at Farm Credit Canada. Prior to joining FCC in 2010, J.P. was a professor of agricultural economics at North Carolina State University and Laval University. He also held the Canada Research Chair in Agri-Industries and International Trade at Laval. J.P. is Past-President of the Canadian Agricultural Economics Society. He obtained his Ph.D. in economics from Iowa State University in 1999.

@jpgervais